PG&E: Wildfire De-Risking Continues, A Rangebound Stock Could Be A Recovery Story

Aug. 03, 2022 6:35 PM ETPG&E Corporation (PCG)14 Comments

Summary

  • Wildfire liability crushed PG&E in 2017 and 2018.
  • With a major settlement in the rearview, its management team is focused on keeping risk top of mind.
  • The chart is trendless for now, but bulls should watch one key price for clues on a breakout.

Workers Examine Site Of PG&E Gas Leak Explosion In San Francisco

Justin Sullivan/Getty Images News

Climate matters continue to be top of mind among legislators on Capitol Hill. Last week's Inflation Reduction Act aims to support domestic clean energy providers. Another aspect of the environmental push is working to ensure events like the California wildfires of yesteryear happen less frequently. PG&E was and is at the heart of litigation claims following that devastation. The stock has been crushed over the last five years, but there could be value here.

According to Bank of America Global Research, PG&E Corporation (NYSE:PCG) is the owner of the Pacific Gas & Electric Company, a regulated utility servicing 13 million people in a 70,000 square mile service area in Northern and Central California. The utility has businesses in electric and natural gas distribution, electricity generation, procurement, and transmission, as well as natural gas procurement, transportation, and storage. Pacific Gas & Electric manages 5.2 million customer accounts and 4.3 million gas customer accounts.

The $27 billion market cap San Francisco-based utilities sector stock does not pay a dividend and features a remarkably high short interest ratio of 15.9%, according to The Wall Street Journal. Earlier this year, the company reached a $55 million settlement over its California wildfire saga.

Just recently, PCG missed analyst estimates for its Q2 earnings last week.

Earnings Steadying, But A Q2 Miss

Earnings Steadying, But A Q2 Miss

Fidelity Investments

While profits were below forecasts, the long-term valuation looking out through next year appears favorable once earnings normalize. BofA analysts see EPS rising at a strong rate from $1.00 in 2021 to $1.34 by the end of next year. There's hope that PG&E could reinstate its dividend, too. Moreover, the company could turn free cash flow positive over the coming quarters.

PCG: Earnings, Valuation, Dividend Forecasts

PCG: Earnings, Valuation, Dividend Forecasts

BofA Global Research

With the Q2 earnings report in the rearview mirror, the corporate event calendar is light until PCG's Q3 earnings date unconfirmed on Oct. 31 BMO according to Wall Street Horizon.

PG&E Corporate Event Calendar

PG&E Corporate Event Calendar

Wall Street Horizon

The Technical Take

The last two-plus years have been one big chopfest for PG&E shares. There was heavy selling and a massive drawdown from 2017 through 2018 as the company dealt with severe liability around the California wildfire situation. Since mid-2020 though, the chart is simply trendless. There's support in the $8 to $9 range and resistance in the $12 to $14 area. The bulls will point to five straight positive weeks, but that's just near-term noise to me.

I like the earnings recovery story that might play out, but that needs to be confirmed by price action. I'd be a buyer of the stock on a breakout above about $13 - that would trigger a measured move price objective to near $18.50.

PCG: Rangebound For Now

PCG: Rangebond For Now

Stockcharts.com

The Bottom Line

Fundamentals appear to be improving for PG&E as its management team works to de-risk its portfolio of generation assets and load requirements. The stock has gone through a tough re-rating, but it might be basing now. Still, bulls should wait for a technical breakout before jumping aboard.

This article was written by

CFA & CMT Charterholder | Freelance Financial Writer at SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written content used in various formats including blogs, emails, white papers, and social media for financial advisors and investment firms in a cost-efficient way. My passion is putting a narrative to financial data. Working with teams that include senior editors, investment strategists, marketing managers, data analysts, and executives, I contribute ideas to help make content relevant, accessible, and measurable. Having expertise in thematic investing, market events, client education, and compelling investment outlooks, I relate to everyday investors in a pithy way. I enjoy analyzing stock market sectors, ETFs, economic data, and broad market conditions, then producing snackable content for various audiences. Macro drivers of asset classes such as stocks, bonds, commodities, currencies, and crypto excite me. I truly enjoy communicating finance with an educational and creative style. I also believe in producing evidence-based narratives using empirical data to drive home points. Charts are one of the many tools I leverage to tell a story in a simple but engaging way. I focus on SEO and specific style guides when appropriate. My CFA and CMT backgrounds demonstrate prowess in investment management and my professional experience includes extensive public speaking and communication. Moreover, my extensive university teaching and professional trading experience provide useful skills. Past roles also include heavy use of Excel modeling and chart creation as well as PowerPoint.I am a contributor to The Dividend Freedom Tribe. I am a contributor to Topdown Charts.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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